Archives for September 2018

If you suddenly discover a mistake on the income-tax return you just filed, don’t panic. You can correct it. And you’re probably better off correcting it yourself rather than waiting to see if the IRS discovers the error.

Hot to Fix the Mistake

The IRS has a special form you can use to correct mistakes — Form 1040X, in the case of a individual tax return. You list the amount you originally reported in the first column of the form, changes in the numbers in the second column, and the corrected figures in the third. Write an explanation of your changes in Part III of the form.

You then have to attach to Form 1040X the forms and schedules of your income tax return that were affected by the error, both as originally filed and as amended.

If the error is the result of a corrected W-2 or 1099, attach a copy of that form to your return. And if the error is due to a missed deduction, attach a copy of the receipt to your return. The more documentation you provide, the better.

For a corporation return, you can correct the mistake by filing Form 1120X.  If the business is an S corporation, you will redo Form 1120S and check “Amended Return” box at the top of the first page. The same applies for a business filing as a partnership: you redo Form 1065 and check the “Amended Return” box at the top of the first page.

You must be careful when amending a return for a business taxed as an S corporation or as a partnership. When amending a business return of a flow-through entity, this will generate an amended K1 form that will flow on the owners’ personal returns. Thus the business owners will now have to amend their own personal income tax return by filing Form 1040X.

Don’t Delay

Generally, for an individual tax return, for a credit or refund, you must file Form 1040X within three years after the date you filed the original return or within two years after the date you paid the tax, whichever is later.

Give us a call today, so we can help you determine the right course of action for you.

Once you’ve filed your tax return, you may be tempted to clean house and get rid of some of your old records that are taking up space. The guidelines that follow will help you decide which items can go and which should stay in your files.¹

Records for Income and Expenses

Keep for at least three years after the date you file your return (or its due date, if later) the records proving your income and expenses, such as:

• Form(s) W-2
• Form(s) 1099
• Form(s) K-1
• Bank and brokerage statements
• Canceled checks or other proof of payment

Three years is generally considered a minimum. The IRS advises keeping employment records for a minimum of four years.

If you can, consider keeping your documentation for six years, the IRS’s time limit for auditing a return when income is substantially understated and no fraud exists.

If fraud exists, the IRS doesn’t have a time limit for auditing your return and records must be kept indefinitely.

Investments Records

You’ll need your investment documents to figure your gains and losses when you sell the investments. After you’ve sold an investment, continue to retain your records for as long as you keep the other items supporting the tax return on which you report the sale (three or six years). Investment records include statements showing when you purchased the investment, the purchase price, brokerage commissions, and any reinvested dividends.

Residence Purchases and Improvements Documentation

Hold on to closing statements and other paperwork related to the purchase of your principal residence for use when you eventually sell the home. Put records of any home improvements you’ve made in the file, too. While many homeowners won’t have a taxable gain when they sell their homes because of the $250,000 ($500,000 for married couples) exemption, special circumstances, such as renting out your home or having a home office, could result in a taxable profit.

Your Tax Returns

Maintain one or more permanent files with important personal documents, including your tax returns. If you don’t file a return, the IRS can assess tax at any time. You’ll need a copy of your return in case the IRS has no record of your filing.

You can find additional information about how long you should keep your records on the IRS website.

Source/Disclaimer:

¹This communication is not intended to be tax advice and should not be treated as such. Each individual’s tax situation is different. Contact us to discuss your personal situation.